The Nevada Supreme Court has answered a question that developers and contractors have been asking for years: can the statutory limitation period for a construction defect action be shortened? The court answered in the affirmative but held that there must be no statute to the contrary and that the reduced limitation period must be reasonable and not violate public policy.
Specifically, in Holcomb Condominium Homeowners’ Association Inc. v. Stewart Venture (April 4, 2013), the Nevada Supreme Court evaluated the applicability of a shortened statute of limitations in an arbitration agreement that was incorporated into a purchase and sale agreement. The arbitration agreement limited the statute of limitations for negligence and warranty claims to two years. The Nevada Supreme Court evaluated NRS 116.4116, which expressly permits contractual reduction of its six-year limitation period for warranty claims to not less than two years for residential units, if the limiting agreement is contained in a "separate instrument." Here, the court found that because the limiting provision was within an arbitration agreement that was attached to and incorporated into the purchase contract, the limiting provision did not qualify as a "separate instrument" and was therefore invalid.
As for the negligence-based claims, the court did not address the applicability of the contractual two-year limitation period, but remanded the issue to the district court to evaluate (in light of the newly stated rule) whether any statute is contrary to the shortened period, whether the shortened period is reasonable, and whether the provision itself, or its terms and placement in the agreement, is unconscionable or in violation of public policy.
Given the implications of possibly reducing Nevada’s lengthy statutes of limitations in construction defect actions, the subsequent decision by the district court, along with any ruling in an appeal of that decision, will be closely watched by development/contractor counsel and association/homeowner counsel.